U.S. High Court To Rule On Bankruptcy Exemption For Inherited Retirement Accounts

WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court on Nov. 26 granted certiorari in a case in which a debtor couple contend that high court review is needed to settle a split in the circuit courts regarding whether Chapter 7 debtors are permitted to exempt money in an inherited individual retirement account (IRA) from their bankruptcy estate (Brandon Clark, et al. v. William Rameker, No. 13-299, Chapter 7, U.S. Sup.) [lexis.com subscribers may access Supreme Court briefs for this case].

Bankruptcy

Brandon Clark and Heidi K. Heffron-Clark filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Wisconsin in 2011 and claimed an exemption for an IRA that had passed to Heidi when her mother died.

The trustee, William Rameker, objected to the exemption. The Bankruptcy Court ruled in favor of the trustee, and the couple appealed to the U.S. District Court for the Eastern District of Wisconsin.

The District Court reversed the Bankruptcy Court’s decision. The trustee appealed to the Seventh Circuit U.S. Court of Appeals, which reversed the District Court’s ruling.

11 U.S. Code Section 522

The couple then petitioned the U.S. Supreme Court on Sept. 6, seeking review on grounds that the Seventh Circuit’s ruling creates a conflict among circuit courts. Specifically, the Fifth Circuit has held that inherited IRAs such as in this case are covered by the retirement funds exemption in 11 U.S. Code Section 522.

The couple contended that the question of what qualifies under the definition of retirement funds is “one of substantial and growing importance.”